Wednesday, October 16, 2013

Markets rally on hopes for debt deal

Dow shot up 203, advancers over decliners 3-1 (mild all considered) & NAZ added 45.  The MLP index was up 2 to the 444s & the REIT index gained 3 to 277.  Junk bond funds went up & Treasuries were weak.  Oil rose after Senate leaders said they’ll resume talks to end a fiscal impasse to avoid a default.  Gold fluctuated not knowing where to go.

AMJ (Alerian MLP Index tracking fund)

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CLX13.NYM....Crude Oil Nov 13...101.41 Up ...0.20 (0.2%)

GCV13.CMX...Gold Oct 13.........1,275.60 Up ...2.60 (0.2%)

The Senate prepared for a last ditch effort to avoid a historic lapse in the gov's borrowing authority, a breach that could lead to default & deliver a damaging blow to the global economy.  After a day of stop-and-go negotiations, the top Dems & Reps in the Senate were said to be close to agreeing on a proposal to raise the debt limit & reopen the partially shuttered gov for consideration by the full Senate later on today.  The measure's fate remained uncertain in the fractured Rep-controlled House, which failed twice Tues to produce its own plan.  The Senate was scheduled to meet at midday.  With borrowing authority set to run out tomorrow, Harry Reid & Mitch McConnell "are very close" to an agreement, supposedly.  "Our assumption is that there will be a plan," John Chambers, chairman of S&P's Sovereign Ratings Committee said.  McConnell & Reid resumed stalled talks after a roller coaster day that saw 2 separate legislative efforts in the House buried after it became apparent too many Republicans were rebelling against their leaders' plans.

U.S. Lawmakers Begin Last-Ditch Effort on Debt Ceiling  Reuters

U.S. Home Construction

Photo:   Bloomberg

Confidence among US homebuilders fell more than forecast in Oct to a 4-month low as rising interest rates & the budget battle stifled progress in the housing market.  The National Association of Home Builders/Wells Fargo index of builder sentiment decreased to 55 this month from a revised 57 in Sep that was weaker than initially estimated.  The forecast called for a decline to 57 (readings above 50 mean more builders view conditions as good than poor).  The figures show a partial closing of the federal gov that began Oct 1 & a political showdown over raising the nation’s borrowing limit are taking a toll on sentiment & delaying spending decisions.  Mortgage rates close to a 2-year high are also slowing gains in real estate, which has been a source of strength for the economy.  “A spike in mortgage interest rates along with the paralysis in Washington that led to the government shutdown and uncertainty regarding the nation’s debt limit have caused builders and consumers to take a pause,”  David Crowe, chief economist at the builders association, said.  “Once this government impasse is resolved, we expect builder and consumer optimism will bounce back.”  Prospective buyer traffic also reached the lowest level since Jun, falling to 44 this month from 46. The gauge of current single-family home sales decreased to 58 from 60.

Homebuilder Confidence in U.S. Declines to Lowest in Four Months

Bank of America Corp. Branch

Photo:   Bloomberg

Bank of America said lower legal expenses & loan losses helped profit rebound.  EPS rose to 20¢ from break-even last year.  The estimate was for 21¢.  CEO Brian Moynihan has said the “lion’s share” of costs tied to disputed mortgages are behind his bank after booking more than $45B tied to the 2008 takeover of Countrywide Financial.  The bank will trim $8B in annual operating costs by the end of 2014 & $10B from troubled loans a year later, Moynihan has said.  Total expenses during the qtr slid 6.6% from a year earlier to $16.4B because of lower costs in the division servicing troubled loans, staff reductions & litigation costs that fell 31% to $1.1B.  Capital levels improved, with the bank saying it expects to exceed new US regulatory minimums for the parent company & its 2 primary banking units.  Revenue rose 5.4% to $21.5B.  But excluding certain accounting adjustments, revenue slid to $22.2B from $22.5B.  “We saw good loan growth, improved credit quality & record deposit balances,” Moynihan said. The stock went up 24¢.

Bank of America Says Net Income Rebounds as Expenses Ease

Bank of America (BAC)

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We've been thru this before.  Markets flying on hopes any kind of deal will solve today's financial problems today & tomorrow will take care of itself.  There will be a lot more bumps in the road in the next 36 hours.  Worse, any solution will have little long term value.  Meanwhile business is plodding along day by day.  This confusion & chaos is taking its tool on the business world starting with GDP.  

Dow Jones Industrials

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